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Sunday, November 5, 2017

What saving an extra $1 a day really means

Many people don't realize what it can mean to save a $1 a day. I have been talking a lot lately about what it takes to earn or save just that much. Now let's see what it's really worth. Much of how it will affect your life depends on what you choose to do with it. I will be running the numbers using the www.investor.gov/ compound interest calculator. This is a great tool if you want to see what your investments will amount to. It even has an option that shows you how much to save if you have a particular goal in mind.

Lets first look at if you simply put it in a bank saving account what can it amount to. My banks saving account gives a whopping 0.1% currently. Although, over the years this does have the possibility of fluctuating. Either way, its got little chance of keeping up with inflation.
As you can see over 35 years you will have $12,996.01. At first, this doesn't sound terrible but if you assume a 3% rate of inflation it would have decreased in value by about $4,902.24 or $8,093.77. Not terrible for a $1 a day, but we are losing out on a lot of money. This may be good for short-term storage but is clearly a bad deal in the long run.

Let's look at if you take a little bit of risk. If you invest in an S&P 500 index fund based on historical performance the return is about 10%. Subtract, 3% for inflation and that amounts to a 7% return.
This is really incredible. Due to the power of compound interest, a 7% return can yield an incredible $50,462. It's really amazing what a $1 a day can do when combined with the power of compound interest.